Stakeholders Provide Suggestions to Prepare For Changes in Practice After Patent Reform

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By Tony Dutra

Patent reform is no longer hypothetical, and patent holders and applicants must make changes in practice to meet the requirements of a substantially changed Patent Act, stakeholders told BNA after the Sept. 8 Senate vote on H.R. 1249.

“After four attempts in the last six years, Congress has passed a bill that will reinvent the current U.S. patent system, which has been in place for almost 60 years,” said Naveen Modi of Finnegan, Henderson, Farabow, Garrett & Dunner, Washington, D.C. “The new law will include several provisions that overhaul the current regime. This is an important time in U.S. history, and we're excited to be part of it.”

BNA asked Modi and other experts to comment on changes related to patent prosecution, patent challenges at the Patent and Trademark Office, infringement charges in court, and defenses to infringement.

The respondents provided a number of suggestions for and predictions about short- and long-term changes in practice.

PTO Fee Structure Set to Change Oct. 1

The most immediate concern of patent applicants is cost, Stephen B. Maebius of Foley & Lardner, Washington, D.C., said. “Patent applicants need to budget more money for their patent filings,” he pointed out, since H.R. 1249 authorizes a 15 percent increase in most fees as of Oct. 1. “But applicants can save themselves a surcharge by filing electronically under the new law instead of using paper,” he noted, referring to a provision in Section 11 of the bill.

The section also authorizes the PTO to implement “prioritized examination” of patent applications at a premium price. The program expedites processing of an application, with a likely decision on the invention's patentability within one year from the application filing date, compared to the current average of just under three years. The fee will initially be $4,800, with small entities given a 50 percent discount.

Rebecca M. McNeill of Finnegan, Henderson, Farabow, Garrett & Dunner, Cambridge, Mass., was more concerned about the long term, in that Section 10 of the act gives the PTO the authority to set its own fee schedule.

“The PTO may change its fees in an effort to manage patent applicant's behavior, such as significantly increasing the claims fee to even more strongly encourage applicants to file with a limited claim set,” she said. “Or, the PTO may significantly increase the Request for Continued Examination (RCE) fee that applicants must often file to have additional opportunities to negotiate the scope of the claims with the PTO. This could make obtaining patent coverage even more expensive and substantially more difficult for individuals and organizations with a limited budget.”

Dealing with First-Inventor-to-File Change

Most commenters expressed concern for those other than large patent portfolio holders, not just as to the fee structure, but in order to keep up with substantive changes required in the legislation. Most notably, the change to a first-inventor-to-file system and corresponding grace-period disclosure changes—18 months after enactment—will force more applications.

“Small companies, independent entrepreneurs, and universities will be pressured to gather as much data as quickly as possible so that they can be first to file a patent application with sufficient support for broad claims,” Michael Samardzija of Bracewell & Giuliani, Houston, told BNA. “The bill favors larger entities that have the resources to quickly obtain sufficient data that will enable them to be first at the patent office. The bill greatly places small entities at a disadvantageous position.”

Sharon R. Barner of Foley & Lardner, Chicago, who was recently deputy director at the PTO, agreed. “The first-to-file system means that the applicant will need to be prepared to file more quickly either a provisional application or patent application in order to obtain priority and secure patent rights,” she said. Barner contended that large firms have had to deal with first-to-file requirements in other country for years, but it represents “a fundamental mental shift for small and medium inventors.”

“Inventors should consider filing provisional applications as a mechanism for establishing an early filing date for their invention particularly if they have not reduced their invention to practice,” Gary D. Fedorochko of Banner & Witcoff, Washington, D.C. said in agreement. “Serial provisional applications, which are often used in the biotechnology and pharmaceutical industries, may become a preferred practice for inventors across all technology disciplines.”

Pre-Grant Challenges Add to Applicant's Plate

“The new law substantially expands the scope of prior art to encompass inventions in public use or on sale, or inventions otherwise available to the public before the effective filing date of the application in question,” Fedorochko added. “That is, under the new law public uses and commercial activities that occur outside the U.S. now constitutes prior art. While admittedly vague, the newly added language ‘otherwise available to the public' to the definition of prior art acts as a catch all provision.”

That change, Barner said, coupled with the new provision allowing pre-grant submissions of prior art by third parties, will increase the likelihood that patent applicants will have to work harder to fend off more challenges, adding to the cost of getting a patent, at least. But probably more importantly, she said, “Ultimately it will make it harder to get broad claims in crowded or mature technology fields.”

As to challenges to the timing of inventorship, patent reform's proponents touted the supposed simplicity of derivation proceedings in contrast to, as Modi called it, “a hallmark of the U.S. patent system—the interference proceeding.”

Samardzija was not convinced, though. He predicted that derivation proceedings would likely be very costly and time consuming. He further was concerned that smaller companies would anticipate derivation challenges and thus “be more inclined to eschew such options in favor of maintaining their inventions as secrets until the patent is filed. This will likely slow the dissemination of information, especially in academia.”

Maebius identified probably the only positive for applicants—the elimination of the defense in litigation because the applicant, during prosecution, failed to disclose the best mode. He said that left “no penalty” for such a failure, “so applicants can choose not to disclose the best example of their invention, possibly giving them a competitive advantage.”

Challenging Patents Other Than Through Litigation

“The Leahy-Smith Act will present advantageous mechanisms to challenge competitors' patent holdings,” McNeill said.

Pre-grant submissions of prior art “presents a challenger with a unique opportunity to help shape the perspective of the examiner when she is formulating her opinion about the application,” she argued. However, she contended, “In order to take advantage of this opportunity, a challenger must be aware of the application [publication] and submit this information very early in the application's pendency.”

Further, in light of the new regime for post-grant opposition to issued patents, Maebius advised clients “to start now to monitor competitors' patent applications in order to identify those patents they want to oppose within the nine-month window when this provision goes into effect a year [after enactment].” This new “post-grant review” process, along with a revised inter partes review procedure, are described in detail in Section 6 of the bill.

“Post-grant review offers may advantages, including very broad grounds of challenge, a low threshold for initiation, and a lower burden of proof than district court or [International Trade Commission] litigation,” McNeill said. But with the short nine-month window, she seconded Maebius's advice, “I predict that savvy patent challengers will increase the frequency that they search for competitors' patents and applications to take advantage of these beneficial procedures.”

Avoiding Inequitable Conduct Charge

For current patent holders hoping to win an infringement claim in court, the legislation represents “a mixed bag,” Samardzija said. In the patent holders' favor, he pointed again to the elimination of the best-mode defense as well as to the new “supplemental examination” procedure.

Supplemental examination is essentially an ex parte reexamination initiated by the patent owner, but with a different purpose. The procedure allows the patent owner to make pre-litigation submissions to the PTO to potentially correct mistakes in disclosures during prosecution. Submissions of the patent owner taking advantage of that option could not then be used to support an inequitable conduct defense in patent infringement actions, of course, assuming the claims are re-allowed.

McNeill was particularly pleased with the provision. “This procedure insulates a patent owner against a future inequitable conduct charge … so long as it presents the information to the PTO before they have notice of a claim of inequitable conduct,” she said. “Thus, patentees will maximize benefits from this provision by ‘cleaning their own house' before litigation.”

McNeill recommended that, pre-litigation, patent holders “conduct your own mini document production. Go around and ask whether someone has a document that didn't get produced during prosecution.”

“It may be a little bit of extra expense in the pre-litigation stage,” she acknowledged, “but it's much less annoying than facing an inequitable conduct challenge.” She added that supplemental examination can have broader use and effect. “Patentees will also use the supplemental examination to address the concerns of a potential licensee or investor who raised questions about certain information during a due diligence investigation,” she said.

Further, going back to a pre-issuance advantage, McNeill said, “patentees may use this procedure to submit information that may be issued during the time between allowance and issuance, such as an office action in a related U.S. or foreign case that appears generally cumulative over the previously-submitted information. This will save the applicant from withdrawing their case [for failure] to submit information that is substantially cumulative over other cited documents.”

Changes in Defending an Infringement Charge

For companies charged with infringement in court, the broader availability of prior art in attacking patent validity is undoubtedly the greatest benefit provided in the Leahy-Smith Act.

Samardzija pointed to two other advantages, though. “Alleged infringers will have an additional defense of ‘prior commercial use' ” he noted, citing the expansion of “prior user rights” under 35 U.S.C. §273. Section 5, “Defense to infringement based on prior commercial use” will now apply to any technology—it was previously confined to business methods.

Further, Samardzija said, “Infringers will no longer be exposed to an inference of willful infringement for ‘failure to obtain advice of counsel,' ” pointing to Section 17 of the bill.

Short- and Long-Term Overall Impact

“Because the provisions are so new for the patent process in America, I think we will see a lot of litigation about what the terms mean,” Frank A. Angileri of Brooks Kushman, Detroit, told BNA.

“It's also important to note that the legislation has a provision which mandates Congress to evaluate the impact on independent inventors and small businesses, which is a concession to members of Congress who are concerned about the potential impact the first-to-file system could have on small businesses and individual inventors,” he added. “Congress's discussion and evaluation of this impact will definitely be something to keep an eye out for in the future.”

The one immediate impact in courts, Maebius pointed out, was the elimination of all pending false patent marking lawsuits that were initiated by qui tam plaintiffs on behalf of the government. Section 16 of H.R. 1249 effectively eliminates qui tam complaints under 35 U.S.C. §292(a) and retroactively applies.

However, the proper conduct of procedures in front of the PTO's Board of Patent Appeals and in courts will likely require years before the patent community settles into a comfort zone.

First, Barner noted the BPAI and the courts will essentially be making decisions under two regimes—the current statute and then the Patent Act after H.R. 1249 is enacted—for some time. “For existing patents, prior art is determined under the old rules,” she said, as one example, “with one year grace periods for on-sale and public use bars that are limited to those activities in the U.S.”

In the short term at least, Barner was particularly concerned that the BPAI “ is ill-equipped to handle the ‘litigation-type' post-grant proceedings both due to a lack of personnel experienced in litigation and because of the existing workload backlog of over 25,000 cases.” Though she indicated that the personnel issue might be resolvable in the long term, she criticized Congress for failing to include a provision that would guarantee a fully-funded PTO.

If the PTO does not have access to all of the fees it collects from patent applicants and owners, she said, the result will be “a slew of new processes, procedures, and personnel that are unfunded.”

Even without considering funding, the “shake-out” period for interpreting the new act's provisions will take some time, the experts noted. Barner cited “a lack of clarity in several provisions that will only be tested through court, especially surrounding first-to-file and the grace period.”

Maebius agreed. “It will be many years before test cases on all the ambiguous language and challenges to new PTO rules under the statute work their way through the system,” he said.

He concluded by urging stakeholders to review the new laws provisions in detail. “Above all, studying the language and legislative history will position any party better than an uninformed party to use this new law to its advantage, as well as monitoring and participating in the unfolding rule making activity at the PTO.”

‘Fundamental Shifts' in Patent Law Balance

The new act contains “fundamental shifts” in patent law, McNeill said, summarizing the respondents' overall view. We are likely to know better and earlier which are the “good patents,” she said, and the legislation “gives the patent community the opportunity to eliminate bad patents from the get-go.”

Owners of the good patents will have “confidence that challenges will be knocked down,” she said. Conversely, bad patents “won't serve as a cloud to disincentivize people to move into a new technology.”

Text of H.R. 1249 is at